Analysis of the impact of dollarisation on Zimbabwe’s international trade flows (2009-2013)

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Analysis of the impact of dollarisation on Zimbabwe’s international trade flows (2009-2013)

Chimombe, Shaw

Supervisor(s):Makochekanwa, Albert

Level:MSc

Qualification Name:Master of Science in Economics

Department:Economics

Faculty:Faculty of Social Studies

Institution:University of Zimbabwe

Type:Thesis

Country:Zimbabwe

Citation Information:Chimombe, S. (2015). Analysis of the impact of dollarisation on Zimbabwe’s international trade flows (2009-2013) (Unpublished master's thesis). University of Zimbabwe.URI:http://hdl.handle.net/10646/3164

Date:2015-04

Abstract:

This study analyses the extent to which dollarisation or the multi-currency system impacted
on Zimbabwe’s trade flows to, and from, its major trading partners during the period 2009 to
2013, in comparison with the period prior to dollarisation, 2000-2008. Studies that have been
done on other dollarised countries have shown mixed results regarding the trade-enhancing
effects of dollarisation. This study used the Gravity Model of trade analysis to estimate the
effect of dollarisation and other variables on Zimbabwe's exports and imports. A crosssection
of twelve (12) Zimbabwe's major trading partners, constituting at least 90% of total
trade, formed part of the study over a period of fourteen (14) years. The Gravity Model panel
dataset was estimated using the Pooled Ordinary Least Squares regression method, with
variables including GDP, distance, exchange rate volatility and dummies for dollarisation,
free trade agreements and common language. The study found that dollarisation had no
significant effect on the country's exports. Dollarisation was found to have had a very
significant effect on imports with an estimate of 0.82 implying that Zimbabwe’s imports
increased by 147% i.e. 100(e.82-1), holding other things constant. This finding is consistent
with results of major studies done elsewhere and is kind of a true reflection of the surge in
imports actually experienced by the country during the period 2009-2013. The study
concludes that dollarisation was more favourable to imports than exports, and contributed to
some extent to the country's deteriorating balance of trade. The results, however, show that
there could be other critical factors behind Zimbabwe’s trade performance given that only
40% of the variation in trade was explained by the variables under consideration.